A District Court judge in Maine has granted motions to dismiss a class action accusing a state agency, its outside collection counsel, and a state court administrator of violating the Fair Debt Collection Practices Act and a series of state laws in trying to collect a defaulted student loan.
The background: About 20 years ago, the lead plaintiff, with his parents as co-signers, took out two $10,000 loans through a state student loan program to help pay for college.
- Despite working full time, the plaintiff could not afford the monthly payments and defaulted more than a decade ago; within 10 days of the default, roughly $3,215 in collection costs was added to the balance, and about $2,836 in late fees followed.
- The agency has also offset about $6,000 of the plaintiffs’ state income tax refunds over the past decade.
- After receiving a collection letter from the agency’s outside counsel, the plaintiff disputed the debt and requested verification, but claimed he was pointed back to the same loan history he was questioning in the first place.
- The agency sued the plaintiffs in state court for $21,228, won a judgment, and the state’s highest court affirmed.
- The plaintiffs then filed this federal class action, accusing the agency and its attorneys of a “scheme to collect zombie student loan debt” by applying a fixed 8.45% interest rate instead of the variable rate they say the loan agreement required, charging excessive fees, and relying on unreliable records; they also claimed a state court policy marking the agency’s collection cases as “confidential” violated their First Amendment right of access to court records.
- The agency argued it was immune from suit in federal court, the attorneys argued the claims were untimely and implausible, and the court administrator argued no such confidentiality policy exists.
The ruling: Judge John A. Woodcock, Jr., of the District Court for the District of Maine granted all three motions to dismiss.
- Judge Woodcock wrote that the agency, as an arm of the state, cannot be sued in federal court, noting the FDCPA expressly excludes state agencies from its definition of debt collector and the state never agreed to face these claims in federal court.
- Most of the claims against the attorneys fell outside the FDCPA’s one-year statute of limitations, and what remained rested on conclusory attacks on an employee affidavit filed in the state collection case, with the judge observing that “there is a chasm between having divergent legal interpretations of a loan agreement’s terms about what that borrower owes and a lawyer making false, deceptive, or misleading representations in court.”
- The attorneys were entitled to rely on the records their client provided, and the state’s student loan servicing law covers servicing activity before default, not collection efforts launched a decade after one.
- The First Amendment claim failed because the plaintiffs never identified any actual court policy denying access, and since they ultimately obtained the records they sought, the claim was moot anyway.
